Measuring systemic risk contribution: A higher-order moment augmented approach

Peiwen Wang and Guanglin Huang

Finance Research Letters, 2024, vol. 59, issue C

Abstract: Marginal contributions of individual institutions to the systemic risk contain predictive power for potential future exposures and provide early warning signals to regulators and the public. In this paper, the higher-order co-skewness and co-kurtosis are used to construct systemic risk contribution measures, which allow us to identify and characterize the co-movement driving the asymmetry and tail behavior of the joint distribution of asset returns. We illustrate the usefulness of higher-order moment augmented approach by using 4868 stocks living in the Chinese market from June 2002 to March 2022. The empirical results show that these higher-order moment measures convey useful information for systemic risk contribution measurement and portfolio selection, complementary to the information extracted from a standard principal components analysis.

Keywords: Co-skewness; Co-kurtosis; Systemic risk contribution; Portfolio selection; Eigenvalue decomposition (search for similar items in EconPapers)
JEL-codes: G11 G17 G29 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323012059

DOI: 10.1016/j.frl.2023.104833

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